METALS & MINING SPDR FAILS TO HOLD BREAKOUT -- STEEL ETF TESTS CONSOLIDATION SUPPORT -- RETAIL SPDR STALLS AHEAD OF BIG REPORT -- SOLAR ETF, FIRST SOLAR AND SOLAR CITY HEAT UP -- OIL BREAKS TO NEW LOWS AND TAKES GASOLINE WITH IT
METALS & MININGS SPDR FAILS TO HOLD BREAKOUT... Link for today's video. Metals and mining stocks are getting hit hard on Monday. Gold, silver and platinum were down around 1% in afternoon trading. Elsewhere, iron-ore prices hit five year lows this month. Overall, gold is trading some $600 below its peak in July 2011. Silver is down more than 50% since April 2011. Platinum is some 25% below its 2011 high. Chart 1 shows the Metals & Minings SPDR (XME) breaking above resistance in mid August and then stalling for a few weeks. A stall around resistance is ok, but it is important that the breakout holds. Well, the breakout did not hold as XME broke down with a sharp decline below 42.50 today. The indicator window shows XME relative to SPY. This indicator formed a lower high in early August and broke the June trend line in early September.
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Chart 1
STEEL ETF TESTS CONSOLIDATION SUPPORT ... Chart 2 shows the Steel ETF (SLX) still within a consolidation pattern. The ETF broke out in late June and moved to a 52-week high in late July. Trading, however, has been flat since early July as the ETF bounced between 48 and 50. A break above consolidation resistance would be bullish, but the ETF is showing relative weakness and a break below support would be bearish. The indicator window shows SLX relative to SPY. Notice how this price relative formed a lower high in early August and moved lower the last four weeks. United States steel stocks, such as X, NUE and STLD are doing fine, but foreign steel stocks, such as RIO, and VALE, are under selling pressure. Also note that Chinese steel stock Posco (PKX) hit a 52-week high on Friday.
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Chart 2
RETAIL SPDR STALLS AHEAD OF BIG REPORT... It could be a big week for retail stocks because the Commerce Department will report August Retail Sales on Friday. This is an important report because it includes the back-to-school season, which is the second biggest season after Christmas. Chart 3 shows the Retail SPDR (XRT) forming a higher low in the 83-84 area and then surging to a new high in late August. The ETF has since consolidated in the 88 to 90 area over the last two weeks. Admittedly, the short-term is a tough call. Long-term, however, the overall trend is up and this is net positive for the stock market. The indicator window shows XRT relative to SPY using the price relative (XRT:SPY ratio). The long-term trend is down because XRT has underperformed since early December. Short-term, however, the price relative turned up the last six weeks and a break above the July high would be quite positive for relative performance.
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Chart 3
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Chart 4
Note that XRT is a broad-based retail ETF with 100 stocks. And get this. JC Penney (JCP) is the biggest component and weighs in at 1.24% of the ETF. JC Penney's influence is still quite small and the weightings are fairly evenly distributed. This makes XRT and excellent barometer for the overall retail environment. In contrast to XRT, the MarketVectors Retail ETF (RTH) has just 25 stocks and the top five account for around 40% of the ETF. Amazon (AMZN), Home Depot (HD) and Lowes (LOW) are up more than 10% from their early August lows. Wal-Mart (WMT) and CVS are up over 6% since early August. John Murphy noted strength in Wal-mart in Saturday's Market Message.
SOLAR ETF, FIRST SOLAR AND SOLAR CITY HEAT UP... The Solar Energy ETF (TAN) is surging with the Chinese solar stocks leading the charge. Chinese solar stocks are high because the Chinese government announced new initiatives designed to promote solar energy production. Chart 5 shows TAN moving sharply lower at the end of July, but quickly reversing and breaking out with a big move in early August. TAN broke above its June-July highs with a surge above 45 and is starting to show relative strength as the price relative turned up the last five weeks.
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Chart 5
Chart 6 shows First Solar (FSLR) breaking out with a big move in March and then embarking on a long consolidation. A big triangle formed the last 5-6 months and the stock is attempting to break the upper trend line. The indicator window shows the price relative also attempting a triangle breakout.
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Chart 6
Chart 7 shows Solar City (SCTY) breaking out with a surge in June and then consolidating the last two months. A picture-perfect flag or triangle did not form, but the price action within the blue outline captures the essence of a consolidation. A consolidation after a sharp advance is typically a bullish continuation pattern and the stock is bouncing off support the last three days.
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Chart 7
OIL BREAKS TO NEW LOWS AND TAKES GASOLINE WITH IT... Chart 8 shows Spot Light Crude ($WTIC) falling around 14% and then bouncing with a couple one-day moves above 95 (29-Aug and 3-Sep). Each bounce failed as oil moved right back below 94 and then broke below the late August low today. $WTIC is trading around $92 today (-1.2%). Oil remains oversold, but cannot hold a bounce or trigger a breakout. The indicator window shows the Commodity Channel Index (CCI) becoming oversold three times since early July. With today's decline, CCI will likely become oversold a fourth time. Oil is both oversold and bearish as long as CCI remains in negative territory. Look for a break above +50 to trigger a bullish momentum signal. Energy related stocks are likely to remain under pressure until oil reverses the immediate downtrend. Chart 9 shows the USO Oil Fund (USO) for reference. Chart 10 shows the US Gasoline ETF ($UGA) falling over 10% from its late June high.
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Chart 8
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Chart 9
